Don't count on Germany's SPD to rescue Macron's euro agenda

BERLIN (Reuters) - During Germany’s election campaign, the Social Democrats (SPD) rallied behind French President Emmanuel Macron’s ideas for reform of the euro zone, including the creation of a budget, finance minister and separate parliament for the currency bloc.

French President Emmanuel Macron delivers a speech during the International Day for the Elimination of Violence Against Women, at the Elysee Palace in Paris, France, November 25, 2017. REUTERS/Ludovic Marin/Pool

But as momentum builds for another “grand coalition” between the SPD and Chancellor Angela Merkel’s conservatives, doubts are rising about whether the center-left party will make European reform a top priority in looming negotiations.

Several senior SPD officials, some speaking on condition of anonymity, said that while the party continued to support Macron’s ideas, domestic reforms of health insurance, pensions and the labor market were likely to play a more prominent role in eventual talks.

“Europe is not a theme where we can simply push things through. We need to strive for a consensus,” said Johannes Kahrs, a budget expert for the SPD in parliament and leader of the conservative “Seeheimer Kreis” wing of the party.

“It would be nice if the conservatives went along with the idea of a budget for the euro zone, but they need to want it. It would make no sense to try to bully them into this.”

The comments may come as a disappointment to Macron, who called SPD leader Martin Schulz after the collapse of three-way talks between Merkel’s conservatives, the liberal Free Democrats (FDP) and Greens a week ago, and urged him to do his part to ensure political stability in Germany.

The EU faces a narrow window to forge agreement on Macron’s European reform proposals because, as 2019 approaches, it is expected to be consumed by the Brexit negotiations, wrangling over a new long-term budget for the bloc and EU elections.

For that reason, the French president would prefer to avoid a lengthy period of political uncertainty in Germany, including new elections that could delay the formation of a government in Berlin until mid-2018.

REFORM IDEAS

Macron also may be hoping the SPD — led by former European Parliament president Schulz and Foreign Minister Sigmar Gabriel — can convince Merkel’s conservatives to embrace some of his more controversial ideas for the euro zone.

Macron, a centrist, honed many of his European reform ideas with Gabriel when both were economy ministers.

On page 98 of their election program, the SPD calls for many of the same measures that Macron supports: a euro zone budget, finance minister and parliament, as well as harmonized corporate tax rates and the transformation of Europe’s ESM bailout mechanism into a more robust European Monetary Fund.

Two months after the election, senior SPD officials say there is still broad support in the party for these ideas.

But none suggest that the party is likely to insist on them in talks with Merkel that could begin next month. Several pointed to the departure of Merkel’s hardline finance minister Wolfgang Schaeuble, who has shifted to the role of Bundestag president, as a significant step already.

“Before the election, a lot of people said we needed to get rid of Schaeuble. Now they’ve done that for us,” said one senior party member. “Will we push for more on Europe? Yes. Will there be other priorities that are perhaps more important? Yes.”

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Another SPD official said achieving a level playing field on corporate tax rates in Europe and introducing a financial transactions tax were just as important as Macron’s plans to overhaul euro zone governance.

While Merkel has shown a readiness to work with Macron, other members of her conservative bloc are skeptical about his euro zone ideas, fearful Europe could develop into a “transfer union” in which Germany pays for reform-wary southern countries.

Over the past four years, the SPD struggled to put its mark on European policy, with Schaeuble, backed by Merkel, setting a strict rules-based course that emphasized structural reforms in euro member states over closer integration.